Presentation on theme: "Enforcement and Compliance with Labor Regulations Lucas Ronconi Graduate student University of California Berkeley."— Presentation transcript:
Enforcement and Compliance with Labor Regulations Lucas Ronconi firstname.lastname@example.org Graduate student University of California Berkeley
The Policy Debate A large share of employees lack access to legally- mandated benefits in LDCs Lack of access is particularly pronounced among low wage earners Should the government increase enforcement? - More compliance? - Job destruction / wage reduction? - Fiscal cost? - Social Welfare? Too much rhetoric, but no reliable evidence
Challenges to Estimate the Effect of Enforcement on Labor Market Outcomes ChallengesSteps I took 1) Measuring Government Enforcement Collected data on number of labor inspectors per province-year from Argentine Ministry of Labor (1995-2002) 2) Measuring ComplianceCombined analysis of regulations with Household Surveys; and computed compliance with: Minimum Wage, Maximum hours, Vacations, Extra Annual Salary, Work-related injuries Insurance, Health Insurance 3) SimultaneityExplore electoral-cycle in labor inspector force staffing
Estimating the effect of Enforcement on Compliance with Labor Regulations in Argentina Sample: Urban private sector employees in 23 Argentine provinces between 1995 and 2002. Methodology: Separately estimate β for each labor regulation by Two- Stage Least Squares instrumenting Enforcement by Electoral Year (1) Compliance it = α + βEnforcement it + X it λ + it where: Compliance itj = Number of workers with benefit itj Total Employment it Enforcement it = Number of labor inspectors it Total Population it
Basic Statistics VariableMeanStd. Dev.Within-province Std. Dev. Overall Compliance44.6610.435.57 Wage above legal Minimum94.193.091.92 Hours worked below legal Maximum83.385.184.56 Annual extra monthly wage58.5210.624.40 Vacations58.1410.694.39 Work-injuries insurance56.4311.163.95 Health insurance55.5311.574.68 Enforcement (Labor Inspectors per 100,000 people) 5.705.822.53 Note: Unit of observation is a province-year
Results: An increase in Enforcement has a POSITIVE effect on Compliance with all labor regulations In particularly with: - Minimum Wage - Maximum Hours On average, if a province hires an additional labor inspector, overall compliance is likely to increase from 44.7 percent to 44.8 percent.
Theoretically, the effect of Enforcement on Number of people Employed is Ambiguous - Neoclassical model: Minimum wage compliance reduces employment, enforcing maximum hours work has contrary effect - Monopsony: Even enforcing minimum wage regulation can increase employment. - Access to labor benefits can improve workers productivity - Supply responses: work is more attractive Estimating the effect of Enforcement on Employment
Results: An increase in Enforcement has a small and POSITIVE Net Employment Effect - Formal job creation outweighs informal job destruction - An additional labor inspector, on average, leads to 430 more formal jobs per year - No significant effect on average wages
Policy Discussion Enforcing labor regulations that are moderate by international standards* appears to be a welfare enhancing policy * Effects found is this paper are largely driven by enforcement of minimum wages and overtime work, two regulations that in Argentina are moderate/low by international standards –Legal minimum wage is 25% of average wage –Normal hours is about 2,300 per year Estimated Fiscal Effect of Increasing Enforcement in Argentina is negative unless non-contributory benefits are reduced
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